Why the Latest Netflix Rally Could Have Legs

Netflix could be in 12% of all international households, excluding China, by 2021, one analyst says.
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Photo: Daniel Acker/Bloomberg News

Netflix has gotten off to a fast start this year. Shares are already up 15% in 2017, to $142. And there’s plenty more to the rally, says one analyst.

Rob Sanderson at MKM Partners thinks Netflix shares could reach $175 in the next 12 months, 24% above current levels. The key driver is surging international subscriptions, Sanderson explained in a research note on Friday. Previously, his Netflix price target was $10 lower.

While Sanderson sees fairly muted domestic growth, he thinks Netflix can triple its subscribers abroad, going from a recent 41 million to 115 million by 2021 -- that would be roughly 12% of all foreign homes, excluding China. By comparison, Sanderson estimates that Netflix will be in 49% of all U.S. households by 2021.

The key for the stock is that the international business could soon begin generating serious profits for Netflix. Until now, the company has been losing money on its international subscriptions.

There are still risks for Netflix, of course, and a big one could be changing regulations under Donald Trump’s administration. The president recently named a new chairman to the Federal Communications Commission, who is opposed to Net Neutrality, the Obama-era policy that forced U.S. broadband providers to give equal treatment to all Internet traffic.

Without the protection of Net Neutrality, Netflix could be somewhat at the mercy of big broadband providers, particularly Comcast.

Big Picture: Netflix’s international subscriptions are set to soar, according to one analyst. That could boost the stock significantly in the coming year.

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